U.S. Department of Labor

Office of Exemption Determinations
September 21, 2015
Page 4

Sincerely,
Oppenheimer & Co. Inc.

yy: Dennis McNamara
Executive Vice President,
General Counsel

ra
By: Robert Hord_/

Senior Vice President


New York, NY 10004

‘ Oppenheimer S¢ Co. Inc.
)PPENHEIMER $F oad See
‘Transacts Business on all Principal Exchanges

September 21, 2015

Office of Exemption Determinations
Employee Benefits Security Administration
Attention: D11712

Suite 400

U.S. Department of Labor

200 Constitution Avenue, NW
Washington, D.C. 20210

Re: Comments on Department of Labor’s Fiduciary Definition Proposal
RIN: 1210-AB32 and ZRIN: 1210-ZA25

Dear Sir or Madam:

Oppenheimer & Co. Inc. (“Oppenheimer”) respectfully makes this submission in
response to the United States Department of Labor’s (“DOL”) request for comments
regarding its proposed regulation under the Employee Retirement Income Security Act of
1974, as amended (“ERISA”) that will effectively redefine the term “fiduciary” under
section 3(21) of ERISA and section 4975(e) of the Internal Revenue Code of 1986, as
amended (the “Code”).

Oppenheimer is a leading investment bank and full-service investment firm that
provides financial services and advice to high net worth investors, individuals, businesses
and institutions. For over 130 years, we have provided investors with the necessary
expertise and insight to meet the challenge of achieving their financial goals. Our
commitment is to our clients' investment needs.

Oppenheimer supports the comments submitted by the Securities Industry and
Financial Markets Association (“SIFMA”) relating to the DOL’s proposed regulation
under ERISA. Our position is that if the DOL’s proposal is approved, it would
significantly impact a large portion of our clients who are attempting to plan for their
future and invest for their retirement.

First, in regards to the DOL’s expansion of the definition of “fiduciary” under
Section 3(21) of ERISA, many conversations intending to help investors prepare for their
retirement will fall within the expanded scope of providing “investment advice”.
Conversations that were previously designed to offer one’s services would be deemed
fiduciary conversations and thus, subject to the restrictions outlined in the proposal. This
includes all distribution and “rollover” conversations. We concur with SIFMA that such
distribution recommendations and conversations do not constitute fiduciary advice, and
should remain so. It is our position that such conversations are in the best interest of plan.
participants, and would be discouraged if the proposed regulation is enacted, to the
detriment of the retirement system as a whole.


U.S. Department of Labor

Office of Exemption Detenninations
September 21, 2015

Page 2

Confusion among investors is inevitable based on the DOL’s proposal. Investors
want to see specific examples of products as part of a rollover discussion. However,
based on the current DOL proposal, such a conversation would cross the threshold of
being “educational” and instead enter into the realm of “investment advice’. Such advice
would require the execution of a “best interest contract”. This will cause significant
confusion on the part of the client as well as the advisor, who must determine at what
point in the conversation does he or she need to require the client to enter into a best
interest contract.

The requirement for an advisor to enter into a “best interest contract” is also
impractical. A written contract with the client will make both the advisor and broker-
dealer potentially liable for a breach of contract claim, thus exposing both parties to
unnecessary litigation risk. It is important to note that individual participants under a
401(k) plan have legal recourse against any breach of fiduciary duty. Such recourse is
mainly limited to litigation on behalf of the 401(k) plan. However, if an individual can
take legal action solely on his or her behalf, such action becomes more likely. This would
most certainly be the case if an individual advisor or broker dealer was required to enter
into a best interest contract with each client.

Added litigation risks would arise due to the DOL’s proposal that IRA clients
must have the ability to bring class action lawsuits. It is Oppenheimer’s position that such
a requirement will incentivize plaintiffs to bring such lawsuits. A possible consequence
of increased class action litigation would be large settlements, which would further
encumber and discourage such client relationships.

Another concern is the “best interest” standard itself. An argument can be made
that the best interest standard means that the recommendation of a product is the “best
solution”. However, given the volatility of financial markets today, it is more than likely
than an alternative product may outperform the selected product. Thus, if the
recommended product underperforms, the “best interest contract” may open the
floodgates for plaintiffs to claim that the better performing product was actually in the
client’s best interest. This 20/20 hindsight would greatly increase legal exposure for
Oppenheimer and most other firms.

An additional area of concern is the required “compensation disclosure” outlined
in the DOL’s proposal. Specifically, the DOL would require a firm to disclose direct and
indirect compensation for a recommended product as well as any alternative products
available to the client. To do so would impose an undue burden on firms and their
advisors. As a result, many firms will be exposed to class action liability for failure to
adhere to such onerous requirements.

Further, the enormous cost associated with complying with the “best interest
contract” requirement for cost disclosures and product comparisons is substantial. To put
in place the required infrastructure necessary to ensure observance of the best interest


U.S. Department of Labor

Office of Exemption Determinations
September 21, 2015

Page 3

standard would require the development of technology over the course of several years at
a prohibitive cost. Despite the fact that the industry shares a large amount of electronic
product data already, there are no mechanisms in place to aggregate such data. Thus, a
great deal of time and money will need to be expended by firms to abide by such a
requirement.

To make the best interest contract a viable solution, we believe that the Securities
and Exchange Commission (“SEC”) should define a best interest standard across all
account types in order to preserve an investors’ choice. As our industry is heavily
regulated, it would be wise for one governing body, such as the SEC, to provide guidance
and to ward off any conflicting regulations and interpretations. Some suggestions for this
definition would be disclosure of material product costs at the time the recommendation
is made; regular updates on the performance of an individual product; full disclosure of
material forms of compensation received by the firm and advisor; and disclosure of the
terms of a product and why it is being recommended.

Further, Oppenheimer is of the opinion that the DOL’s requirement for an actual
“best interests’ contract should be removed. In addition, the DOL should require
compensation disclosures for recommended products and supplement the one, five and
ten year performance/cost estimates with clear disclosure of the current and expected fees
and costs.

An area of concern is what constitutes reasonable compensation under a best
interest contract. The DOL proposes that advisors would be allowed to receive
commissions that are “reasonable”. However, the DOL fails to define the term
“reasonable”. Without a definition of the term reasonable, a “one size fits all”
commission schedule could conceivably be applied for all products. This reduction in
choice will significantly impact investors, as the client will end up having to pay more. If
the industry moves to “one size fits all” pricing, advisors are likely to determine that they
cannot afford to work with their smaller clients.

In conclusion, we concur with SIFMA’s comments relating to the DOL’s
proposed regulation concerning a new definition of a “fiduciary”. We believe that the
DOL’s proposal would create confusion for clients regarding the level and standard of
care that they can expect to receive from their advisors. Further, such prohibitive
restrictions will increase the risk of litigation, increase costs, reduce client choice and
negatively impact the retirement system. We strongly urge the DOL to consider the
comments found in this letter, the position letter of SIFMA and the written submission
from the numerous firms who have stated suggestions to the DOL’s proposal.

On behalf of Oppenheimer, we appreciate the opportunity to provide you with our
position on this proposal.